THEORETICAL FRAMEWORK OF QUALITY CONTROL
Overview of Quality in performing an audit
1.1.1 Definition of Quality in audit
In VSA 220 - quality control audit activities (issued under Decision No. 28/2003 / QD-BTC dated 03/14/2003 of the Minister of Finance) has stated:
"The quality of audit activities is satisfaction level of the users of audit results for the objectivity and reliability of the audit opinion of the auditors, and also satisfy the wishes of the audited units on the comments of auditor in order to improve business performance, in predetermined time with affordable prices".
Another source from ISA, Quality control systems, policies and procedures are the responsibility of the audit firm Under ISQC 1, the firm has an obligation to establish and maintain a system of quality control to provide it with reasonable assurance that:
- The firm and its personnel comply with professional standards and applicable legal and regulatory requirements; and
- Reports issued by the firm or engagement partners are appropriate in the circumstances
This ISA is premised on the basis that the firm is subject to ISQC 1 or to national requirements that are at least as demanding
Engagement teams are tasked with executing quality control procedures specific to the audit engagement, ensuring that these practices contribute valuable information for the firm's quality control system, particularly regarding independence.
Quality audits differ from other professional products as they are not easily reviewed or tested, making it essential for service users to understand the key factors that contribute to a quality audit This understanding helps them select and trust the products and services they use Additionally, audit firms and auditors must be aware of the quality requirements for social auditing to deliver consistent services and align public expectations with their implementation capabilities Furthermore, measuring user satisfaction presents a complex challenge, as it cannot be quantified in the same manner as other professions.
1.1.2 The criteria for assessing the quality of audit
The audit, conducted in accordance with the 220 standards for quality control, evaluated three key criteria, focusing on the objectivity and reliability of the audit opinion as perceived by users of the audit results.
The objectivity and independence of auditors are essential for the effective use of independent audit services, ensuring that audit opinions provide valuable insights Users of audit results rely on these opinions for assurance regarding the accuracy and relevance of the audit reports This trust is established through the expertise of qualified auditors and their commitment to maintaining independence and objectivity Stakeholders are satisfied when they can confirm that audit opinions are grounded in these principles Therefore, the assessment of auditors and audit firms should focus on their adherence to professional ethics, which is reflected in their professionalism during the audit process.
+ The independence, objectivity and integrity
+ Knowledge, skills, experience of auditors
+ The method of collection and evaluation of audit evidence
+ The monitoring and management audit
The review procedures and issuance of audit reports play a crucial role in enhancing the efficiency of financial management within audited units, adhering to state policies and internal regulations The satisfaction level regarding auditors' contributions is essential for ensuring compliance and improving overall financial performance.
Effective management of audited firms often struggles with the detection and prevention of errors in financial and accounting practices due to imperfect internal controls Consequently, financial statements may contain material misstatements Auditors are responsible for ensuring that these statements are free from significant errors, and if misstatements are found, they must alert the management for necessary adjustments By acting on the auditors' findings and recommendations, managers can enhance their internal control systems and boost the overall efficiency of financial management within the organization.
Management satisfaction with non-specific audits hinges on the professionalism and accountability of auditors, as perceived by business managers Timely preparation and issuance of audit reports, as outlined in the audit letter, along with appropriately priced audit services, are essential for maintaining this satisfaction.
Timely financial information is crucial for effective management decision-making, as delays can render the data useless and lead to missed business opportunities While audits do not serve as independent information channels, they evaluate the integrity of the information provided by clients Auditors review and express opinions on the accuracy of this financial data before it reaches users Any delays in the audit process, whether due to organizational inefficiencies or other factors, can negatively impact the reputation and service quality of audit firms.
The cost of an audit is a crucial indicator of its quality, particularly in the context of independent auditing within a market economy Prioritizing the interests of audited units is essential, as social and economic factors significantly impact service delivery To minimize costs for clients, it is vital to exclude these influencing factors, while also ensuring effective collaboration between the auditor and the audited units Efficiently determining audit requirements and reducing audit time, while still gathering adequate and appropriate evidence, are key strategies for lowering service costs.
Internal control, as defined in ISA 315, is a process influenced by an entity's board of directors and management, aimed at providing reasonable assurance for achieving objectives The quality of audits is linked to the effectiveness of internal controls, particularly the role of the audit committee, which ensures financial reporting quality and corporate accountability High-quality audit committees are expected to reduce internal control weaknesses Additionally, firm size serves as a proxy for audit quality, with larger audit firms assumed to conduct more thorough audits due to their resources and lower incentives to compromise standards Research indicates a positive correlation between audit firm size and audit quality, suggesting that larger firms yield more accurate financial information Auditor fees encompass all charges for audit and non-audit services, reflecting the costs associated with the audit process Auditor independence is crucial, as an independent audit committee fosters transparency and mitigates management influence on external auditors Lastly, an auditor's reputation is significantly impacted by historical events, such as the Enron and Andersen scandal, affecting perceptions of audit quality.
Different markets have varying social demands and audit requirements, influenced by factors such as state regulations and the nature of the entities involved, including foreign investments and state enterprises This inconsistency in management systems and internal controls, along with differing audit objectives, can negatively impact audit quality Additionally, the socioeconomic level plays a crucial role in determining the quality of auditing services Comparing Vietnam's audit quality with that of developed countries like the UK, USA, and France reveals significant disparities in theoretical frameworks and professional practices The lack of comprehensive training for local auditors further exacerbates these issues Thus, enhancing audit quality must align with the broader economic development goals.
Overview of Audit Quality Control
1.2.1 Definition of audit quality control
Quality control in a CPA firm involves the strategies implemented to uphold professional responsibilities to clients and stakeholders This encompasses the firm's organizational structure and the specific procedures established to maintain high standards of service.
Quality control is essential as it ensures firms conduct audits in line with professional standards, thereby safeguarding their reputation and enhancing user confidence in financial statements Additionally, it plays a crucial role in a firm's risk management strategy, as high-quality audits can protect against harmful litigation Auditing standards mandate that CPA firms implement quality control policies and procedures, acknowledging that while these systems can offer reasonable assurance of compliance, they do not guarantee adherence to auditing standards.
Quality control is closely related to but distinct from GAAS Quality controls are established for the entire CPA firm, whereas GAAS are applicable to individual engagements.
Every organization must clearly outline its quality control policies and procedures, tailored to factors such as the firm's size, the number of practice locations, and the specific nature of its operations.
1.2.3 Elements of Quality control system
A firm’s system of quality control should include policies and procedures that address each of the following elements of quality control identified in SQCS No 7:
• Leadership responsibilities for quality within the firm (the “tone at the top”)
The engagement partner is accountable for ensuring the overall quality of each assigned audit engagement, highlighting the importance of their actions and communication with the engagement team to maintain high standards throughout the audit process.
(a) The importance to audit quality of:
(i) Performing work that complies with professional standards and applicable legal and regulatory requirements;
(ii) Complying with the firm’s quality control policies and procedures as applicable;
(iii) Issuing auditor’s reports that are appropriate in the circumstances; (iv) The engagement team’s ability to raise concerns without fear of reprisals;
(b) The fact that quality is essential in performing audit engagements.
During the audit engagement, the engagement partner must stay vigilant by observing and asking questions as needed to identify any signs of non-compliance with applicable ethical standards among the engagement team members.
If the engagement partner becomes aware, through the firm’s quality control system or other means, of potential non-compliance with ethical standards by the engagement team, they must consult with other firm members to decide on the necessary course of action.
Independence: The engagement partner shall form a conclusion on compliance with independence requirements that apply to the audit engagement In doing so, the engagement partner shall:
(a) Obtain relevant information from the firm and, where applicable, network firms, to identify and evaluate circumstances and relationships that create threats to independence;
Evaluate any breaches of the firm's independence policies to assess potential threats to the audit engagement's independence If threats are identified, take necessary actions to mitigate them through safeguards or, if feasible under applicable laws, consider withdrawing from the audit engagement The engagement partner must promptly inform the firm if the issue cannot be resolved for further action.
• Acceptance and continuance of client relationships and specific engagements
The engagement partner must ensure that the proper procedures for accepting and continuing client relationships and audit engagements have been adhered to, and they must assess whether the conclusions drawn in this process are appropriate.
ISQC 1 requires the firm to obtain information considered necessary in the circumstances before accepting an engagement with a new client, when deciding whether to continue an existing engagement, and when considering acceptance of a new engagement with an existing client.5 Information such as the following assists the engagement partner in determining whether the conclusions reached regarding the acceptance and continuance of client relationships and audit engagements are appropriate:
• The integrity of the principal owners, key management and those charged with governance of the entity;
• Whether the engagement team is competent to perform the audit engagement and has the necessary capabilities, including time and resources;
• Whether the firm and the engagement team can comply with relevant ethical requirements;
• Significant matters that have arisen during the current or previous audit engagement, and their implications for continuing the relationship.
If an engagement partner discovers information that could have led to the decline of an audit engagement, they must promptly communicate this to the firm to facilitate necessary actions In the public sector, auditors are often appointed through statutory procedures, which may render some client relationship and audit engagement requirements less applicable However, the information obtained during this process remains crucial for public sector auditors in conducting risk assessments and fulfilling reporting duties.
The engagement partner must ensure that both the engagement team and any external auditor experts possess the necessary competence and capabilities to fulfill their responsibilities effectively.
(a) Perform the audit engagement in accordance with professional standards and applicable legal and regulatory requirements;
(b) Enable an auditor’s report that is appropriate in the circumstances to be issued
An engagement team consists of individuals with specialized expertise in accounting or auditing who perform audit procedures, whether they are employed by the firm or engaged externally However, those providing only consultation do not qualify as part of the engagement team When assessing the overall competence and capabilities of the engagement team, the engagement partner should consider various factors related to the team's qualifications and experience.
• Understanding of, and practical experience with, audit engagements of a similar nature and complexity through appropriate training and participation
• Understanding of professional standards and applicable legal and regulatory requirements
• Technical expertise, including expertise with relevant information technology and specialized areas of accounting or auditing
• Knowledge of relevant industries in which the client operates
• Ability to apply professional judgment
• Understanding of the firm’s quality control policies and procedures
In the public sector, essential competencies for fulfilling audit mandates encompass a thorough understanding of relevant reporting frameworks, including obligations to legislative bodies and public interest considerations Public sector audits often extend beyond traditional financial assessments to include performance auditing and comprehensive evaluations of compliance with laws and regulations, as well as measures for preventing and detecting fraud and corruption.
The engagement partner shall take responsibility for:
(a) The direction, supervision and performance of the audit engagement in compliance with professional standards and applicable legal and regulatory requirements;
(b) The auditor’s report being appropriate in the circumstances
Reviews: The engagement partner shall take responsibility for reviews being performed in accordance with the firm’s review policies and procedures
Before issuing the auditor's report, the engagement partner must ensure, through a review of the audit documentation and discussions with the engagement team, that adequate and appropriate audit evidence has been gathered to support the conclusions drawn.
Consultation: The engagement partner shall:
(a) Take responsibility for the engagement team undertaking appropriate consultation on difficult or contentious matters;
Ensure that the engagement team has conducted necessary consultations throughout the engagement, both among team members and with relevant individuals inside or outside the firm.
(c) Be satisfied that the nature and scope of, and conclusions resulting from, such consultations are agreed with the party consulted;
(d) Determine that conclusions resulting from such consultations have been implemented
Process of Quality control for an audit of financial statements
1.3.1 In planning stage a) The customer control: assessment prior to new customers or reassessment for existing customers This work should evaluate periodically the list of potential customers and old customers. b) Control of the qualifications, competence and ethics of auditors: to adhere to the policy of quality control procedures of the company. c) The independence of the auditors: auditors must be no economic relationship with the enterprise, there is no kinship, blood with one of the business leaders. d) The work assignment between principal auditor and assistant auditor: person assigned to consider factors such as requirements on staff and time, qualified
1.3.2 In the implementation phase of the audit
This phase involves gathering adequate evidence and executing the audit as per the auditing program to provide insights, recommendations, and feedback on the audited company.
1.3.3 In completing the audit period
The Supervisory Board has engaged an audit firm to review the financial records Following adjustments and reconciliations that showed no discrepancies, the audit team will prepare a report expressing their opinion on the accuracy and fairness of the financial statements, which will be jointly signed and subsequently issued.
CURRENT SITUATION OF QUALITY CONTROL OVER
Vietnam Auditing and Evaluation limited company (VAE)
Name: Công ty TNHH Kiểm toán và Định giá Việt Nam (Vietnam Auditing and Evaluation limited company)
Address: 11 th floor, Song Da building, 165 Cau Giay Street, Ha Noi
Company was established based on Certificate of Business no.010300692 date 21/12/2001 which was conferred by Department of Planning and Investment
2.1.2 Quality Control Policies and Procedure through 6 elements:
2.1.2.1 Leadership responsibilities for quality within the firm
The third regulation: recruit and train employees.
The recruitment and training process included: receive, develop their career, foster reward, exchange and change the employees.
Employees have to achieve these standards which issued by CAE company:
• Achieve certain qualifications, at least graduate from university.
• Good moral, honest, independent and interest in auditing and advisory.
• Accept the working conditions and work overtime.
Two ways of training the staffs: combined theory and practicing class,follow the practical work (apply to many-year-experience-staff)
The first regulation: be in charges of compliance employee’s professional ethics.
Staffs and professional employees must abide the audit ethics included: independent, integrity, professional capacity, precisely and professional behavior, they have to comply the professional standards in the company.
Those regulations have been concretized to these regulations about authorities of using information, provisions about evaluating auditors, providing services and controlling.
Evaluating the audit quality will increase the efficient audits.
2.1.2.3 Acceptance and continuation of clients and engagements
The second regulation: control the customers and sign the contracts.
Contents of estimating customers focus on:
• Abilities to have the dispute between customer’s benefits and operation’s benefits
Customers receive audit services through audit contracts, which outline the benefits and responsibilities of both the company and its clients Each audit contract typically includes essential components that define the terms of the engagement.
• The ways to inform the report
• Ability about changing the terms in contracts
• Signature of customers and company
The tight relationship between control the customers and sign the contracts.
Table 2.1: Procedures for accepting a new client
Partner conducts initial telephone discussion/client meeting using as a guide
Partner conducts initial telephone discussion/client meeting using as a guide
Partner decides to potentially accept or decline new client, and records decision
Partner decides to potentially accept or decline new client, and records decision
Send to previous accountant with client authority
Send to previous accountant with client authority
Consider reply and partner decides whether to accept new client
Consider reply and partner decides whether to accept new client
Notify potential client Notify potential client
Send engagement letter and attachments/other notifications (e.g ATO,
ASIC) and set up client file to comply with firm's engagement work paper protocol
Send engagement letter and attachments/other notifications (e.g ATO,
ASIC) and set up client file to comply with firm's engagement work paper protocol
Record client details on new client form and send welcome letter and ethical letter to potential client to obtain the client consent in writing
Record client details on new client form and send welcome letter and ethical letter to potential client to obtain the client consent in writing
Continue to monitor client by completing annually Continue to monitor client by completing annually
Table 2.2: Procedures for a lost client
An example is a client evaluation form, dealing with such matters as predecessor auditor comments and evaluation of management must be prepared for every new client before acceptance.
In VAE:The second regulation: control the customers and sign the contracts.
Contents of estimating customers focus on:
Communicate any withdrawal in writing to client using disengagement letter
Communicate any withdrawal in writing to client using disengagement letter
Partners should evaluate if the firm is obligated to disclose the reasons for withdrawal to regulatory authorities.
• Abilities to have the dispute between customer’s benefits and operation’s benefits
Audit contracts establish a formal agreement between companies and their clients, outlining the benefits and responsibilities of both parties These contracts ensure that customers receive audit services effectively, detailing essential components that govern the audit process.
• The ways to inform the report
• Ability about changing the terms in contracts
• Signature of customers and company
The tight relationship between control the customers and sign the contracts. a Human resources
Policies and procedures should be established to provide the firm with reasonable assurance that
All new personnel should be qualified perform their work competently.
Work is assigned to personnel who have adequate technical training and proficiency.
All personnel should participate in continuing professional education and professional development activities that enable them to fulfill their assigned responsibilities.
Personnel selected for advancement have the qualifications necessary for the fulfillment of their assigned responsibilities.
1 Allocate appropriate partner responsibility for HR issues
1 Allocate appropriate partner responsibility for HR issues
2 Partners determine required staffing level
2 Partners determine required staffing level
3 Job descriptions developed for identified position
3 Job descriptions developed for identified position
4 Selection of potential employees documented on candidates interview and evaluation checklist
4 Selection of potential employees documented on candidates interview and evaluation checklist
5 Appropriate individual to welcome new staff members and complete new staff orientation checklist
5 Appropriate individual to welcome new staff members and complete new staff orientation checklist
6 Each professional staff to maintain a training and development record
6 Each professional staff to maintain a training and development record
7 Each staff member's performance review and documented 6 monthly for professional staff and administrative staff
7 Each staff member's performance review and documented 6 monthly for professional staff and administrative staff
Therefore, each professional must be evaluated on every engagement using the firm’s to individual engagement evaluation report.
In the work assignment, the planner must provide essential details, including the member list, individual duties, audit timing for each unit, and necessary equipment For instance, Mrs Thu organized the team responsible for auditing the financial statements of XYZ Co for the period from January 1, 2005, to December 31, 2005, as outlined in the accompanying table.
Table 2.3: LIST OF AUDITORS FOR THE CUSTOMER XYZ CO.
Position Name Years of experience
Chief auditor Nguyen Hong Van 4 years
Auditor Pham Tuyet Trinh 3 years
Auditor assistant Nguyen Thu Ha 1 year
The auditing process is supported by experienced professionals who ensure that the work is conducted thoroughly and scientifically Team members with prior experience auditing XYZ Co bring valuable insights and knowledge about the client, enabling them to guide new members effectively throughout the engagement.
To ensure that engagement personnel's work aligns with professional standards, regulatory requirements, and the firm's quality benchmarks, it is essential to establish comprehensive policies and procedures.
Firms would normally achieve this through the use of standards documentation and processes addressing the following:
The engagement team will be briefed on their roles, with a focus on supervision and training, as well as reviewing work and documentation It is essential to keep processes aligned with current policies and procedures, which will be further explored in relation to ISA 220 later in the presentation.
The firm should establish policies and procedures designed to provide it with a reasonable assurance that appropriate consultation takes place on difficult or contentious matters
That sufficient resources are available to enable consultation to take place The nature and scope of such consultations are documented and conclusions resulting from consultations are documented and implemented
In fact, the firm’s director of accounting and auditing is available for consultation and mist approve all engagements before their completion.
To warranty the quality of audit activities, in audit group, assigning members reasonably is very important Some good organizational structures will ensure the efficient works, improve audit quality.
Supervising the audit reports by leaders has the same meaning with assigning the responsibilities of auditing.
This following assigned Tower will describe the the division of responsibilities in auditing.
The organizational structure within the Tower involves a General Manager overseeing all activities across main agencies and branches in various provinces, focusing on strategic project development and employee training The Vice President manages operations in Hanoi, implements development plans, and reports to the General Manager regarding the operational status and growth potential of the Hanoi headquarters Additionally, the Vice President ensures quality control in auditing processes The Heads of Business are responsible for audit risk management, while the Chairman of Audit oversees compliance with professional ethics and directly handles specific audits Their role includes assigning tasks to employees, motivating them to complete their work, and ensuring quality in each audit activity Auditors and Audit Assistants are expected to fulfill their assignments from the Chairman of Audit and will receive benefits as per company provisions.
General ManagerVice PresidentHead of BusinessChairman of AuditAuditorsAudit Assistants
An audit group typically consists of around five employees, although this number may vary based on the scale of the business operations The Chairman of the Audit is accountable to the Board of Directors for the performance of the team members It is essential for all members to maintain a strong relationship, characterized by mutual support and oversight.
According to the diagram, their tasks, during audit, have assigned into the specific levels.
The Audit Assistants play a crucial role in overseeing funds, fixed costs, vouchers, and invoices while ensuring accurate payment surplus checks under the supervision of Auditors At the close of each workday, Auditors or the Chairman of Audit review the working papers to maintain accuracy and compliance.
Auditors serve as the direct management audit assistants, responsible for handling complex tasks, including performing procedures, conducting analyses, and implementing controls The Chairman of Audit oversees and reviews the auditors' activities throughout the audit process.
The Chairman of Audit holds the top position, responsible for motivating team members, assigning tasks, and reviewing the quality of their work This role includes overseeing the audit reports prepared by auditors, ensuring their accuracy before finalizing and submitting them to the Vice President and General Manager.
Establishing effective policies and procedures is essential for ensuring that a firm maintains quality control These measures should be designed to provide reasonable assurance that all quality control elements are not only well-structured but also actively implemented.
This step focuses on analyzing new developments in professional standards and requirements, drafting the annual independence confirmation, and making informed decisions regarding auditing and consulting Effective communication with relevant firm personnel is essential for identifying and addressing weaknesses in the system of quality control (SQC) Additionally, maintaining a thorough review of quality at the engagement level remains crucial for overall effectiveness.
Table 2.4: Procedures for monitoring a firm's quality control system
Partner review of each engagement includes review of adherence to quality control policies and procedures Review points are included on the job review form.
Quality control leader (or nominee) conducts informal review monthly
Quality control leader (or nominee) conducts firm systems review annually, including review of the risk management framework and quality control policies and procedures and implements follow up action
Firm assists with Institute quality review every 3 or 5 years
Engagement file reviews conducted at least once every 3 years for each assurance partner
Table 2.5: Procedures when dealing with a client complaint
The quality control partner must test the quality control procedures at least annually to ensure the firm is in compliance.
Complain referred to engagement partner for appropriate action
If required by the firm's policy, complaint referred to another partner or consultant/firm for investigation
Complaint documented on client complaint record
Proesional indemnity insurers notified if necessary
ASSESSMENTS AND RECOMMENDATIONS FOR
Assessments for Quality Control in CPA firms
3.1.1 Achievement of CPA firms in Vietnam
The company's quality control process is rigorous, encompassing thorough planning and supervision after audits This involves active participation from Board of Directors members, heads of auditing, and auditors, ensuring that evaluations begin at the most fundamental level.
Recruitment and staff training are vital strategies for our company’s human resource development We implement stringent criteria for hiring new employees annually and offer numerous training programs for existing staff Our diverse working programs adapt to economic changes and government requirements, ensuring our workforce remains skilled and competitive.
Effective quality control is essential for the company, which has dedicated departments to assess client satisfaction levels Staff members are expected to adhere to ethical standards while providing optimal service to customers Prior to signing contracts, the company must conduct a thorough evaluation of preliminary remarks regarding potential risks to determine the feasibility of accepting the contract.
Test of quality control was not conducted in all audit work or conducted in some audit work/programs without having cross- examination from government agencies of audit.
Test of satisfaction about audit quality was only performed by direct communication with customers.
Recommendations
Firms can improve the quality of audit works by:
Cross-checking refers to the evaluation performed by auditing firms to assess their adherence to quality control systems This process offers significant benefits to auditors and the companies they serve, as it helps determine whether auditing firms are effectively implementing the necessary policies.
The company should implement cross-checking among auditor groups within each department to foster objective and independent evaluations of their work quality, ensuring a thorough assessment from specific details to overall performance.
- Enhancing the human resources by maintaining the strict procedure of recruitment and simultaneous training In addition, firms should use some other solutions like frequently test of profession.
- Constructing questionnaire to evaluate the satisfaction from clients is the most effective method to comprehend the control quality system and minimize the risk from customers.
To enhance audit quality, we focus on building a robust network that actively supports and coaches audit teams in applying professional skepticism and executing high-quality audits Our pre-issuance file review program evaluates teams' understanding of the firm's audit methodology and provides real-time feedback for improvement before report issuance Additionally, we expand coaching efforts to help teams navigate complex audit issues, avoid common pitfalls, and effectively address emerging audit risks.
CPAs play a crucial role in providing a variety of services to the public, with auditing being central to the profession Trust in CPAs stems from their integrity, objectivity, and competence, making it essential to enhance audit quality for maintaining this trust Continuous improvement in audit quality will uphold the CPA profession's strong reputation, emphasizing competence and integrity while highlighting the value of audits Each CPA, particularly in Vietnam, contributes to this esteemed reputation and is accountable for the public's reliance on their services As the business environment evolves rapidly, CPAs must adapt to complexities and strive for audit excellence, reinforcing their commitment to the public interest and the profession's core values.